Case Doc 1309 Filed 05/12/15 Entered 05/12/15 20:19:12 Desc Main Document Page 1 of 7

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1 Document Page 1 of 7 UNITED STATES BANKRUPTCY COURT DISTRICT OF MASSACHUSETTS EASTERN DIVISION In re: NEW ENGLAND COMPOUNDING PHARMACY, INC., Chapter 11 Case No HJB Debtor. DECLARATION OF STEPHEN B. DARR IN SUPPORT OF CONFIRMATION OF THE SECOND AMENDED JOINT CHAPTER 11 PLAN OF NEW ENGLAND COMPOUNDING PHARMACY, INC. INTRODUCTION 1. My name is Stephen B. Darr. As of April 13, 2015, I am a managing director of Huron Consulting Services LLC. Prior to that date, I was a Senior Managing Director of Mesirow Financial Consulting, LLC ( MFC ), which has been employed as financial advisor to Paul D. Moore, the duly appointed trustee ( Trustee ) of the chapter 11 estate of New England Compounding Pharmacy, Inc. ( NECC ) or the Debtor ) in the above-captioned bankruptcy case. I had overall responsibilities for all services provided by MFC in connection with these proceedings, and I have personal knowledge of all matters averred in this Declaration, except for those matters stated to be upon information and belief, which I believe to be true and correct. I am competent to testify under oath to the matters set forth in this Declaration if called to do so. I submit this Declaration in support of confirmation of the Second Amended Joint Chapter 11 Plan of New England Compounding Pharmacy, Inc. [Dkt. 1308] (the Plan ) in the above-referenced chapter 11 proceeding. 2. A copy of my resume is attached. In summary, I have over 35 years of extensive experience in providing financial advisory services related to complex restructuring matters. I have served, and continue to serve, as a bankruptcy trustee in numerous cases, and I have served

2 Document Page 2 of 7 as a financial advisor to numerous chapter 11 creditors committees and chapter 11 debtors in possession. Accordingly, I have specialized experience in fiduciary roles, such as trustee, examiner, assignee for benefit of creditors and liquidating agent. I also have significant experience providing litigation support and expert testimony in matters involving, inter alia, professional liability claims and business tort claims. I have provided valuation services in a number of roles for a variety of industries. I am a Certified Insolvency and Restructuring Advisor (CIRA), and I hold a Certification in Distressed Business Valuation (CDBV). I am a Certified Public Accountant (CPA) in the Commonwealth of Massachusetts and the State of New Hampshire. I hold a Certification in Financial Forensics (CFF), and I hold FINRA Series 7, 24 and 79 licenses. I am a Fellow of the American College of Bankruptcy. LIQUIDATION ANALYSIS The Best Interests of the Creditors Test 3. As a condition to confirmation, Section 1129(a)(7) of the Bankruptcy Code requires that the Bankruptcy Court find that each Holder of a Claim or Interest in each Impaired Class: (i) has accepted the Plan or (ii) will receive or retain under the Plan property of a value, as of the Effective Date, that is not less than the amount that such Holder would receive if the Debtor was liquidated under chapter 7 of the Bankruptcy Code. Satisfaction of these criteria is often referred to as the best interests test. 4. Attached hereto as Exhibit A is an analysis (the Liquidation Analysis ) which I prepared and which demonstrates that the Plan satisfies the best interests test. This analysis demonstrates the Plan s satisfaction of the best interests test through the following hypothetical three-part process: (1) estimating the amounts that would be recovered by a chapter 7 trustee if this case were converted to a case under chapter 7 of the Bankruptcy Code (the Liquidation Proceeds ); (2) determining the amounts that would be available for distributions to creditors in a 2

3 Document Page 3 of 7 chapter 7 case; and (3) comparing the amounts available for distribution under a hypothetical chapter 7 case as opposed to the amount available for distribution under the Plan. The Liquidation Analysis is based upon certain assumptions discussed herein and in the Disclosure Statement. General Liquidation Analysis Assumptions 5. The Liquidation Analysis begins with the Debtor s projected cash balance and assets as of May 19, 2015 (the hypothetical Conversion Date ) and estimates the amount of potential litigation recoveries in a chapter 7 case and the net costs to execute the administration of the wind-down of the estate. The Liquidation Analysis assumes that the Debtor would commence a chapter 7 liquidation on or about the Conversion Date under the supervision of a chapter 7 trustee. The Liquidation Analysis reflects the wind-down and liquidation of substantially all of the Debtor s remaining assets and the settlement or prosecution of remaining litigation. 6. If this Court confirms the Plan, in addition to existing cash and estimated proceeds from the realization of accounts receivable and furniture and equipment, the proceeds from the following settlements will be available for payment of administrative priority claims and distribution to creditors: Contributing Party Amount Shareholders Cash payment $47,500,000 Insight Settling Parties and Insurers UniFirst and Insurers Potential anticipated tax refunds $21,800,000 $40,000,000 $30,500,000 NECC Insurers $25,200,000 3

4 Document Page 4 of 7 Contributing Party Amount Inspira and Insurers $16,000,000 Ameridose Insurer $10,000,000 ARL and Insurer $6,400,000 Victory and Insurers $5,500,000 GDC and Insurer $3,750,000 High Point and Insurer $3,500,000 Liberty and Insurer $1,000,000 Total $211,150, In my opinion, a chapter 7 trustee would not be able to realize any amounts from the Contributing Parties in settlements due to the fact that a condition to any settlement with these parties is the third-party releases of these parties provided in the Plan. Such releases are not available in a chapter 7 case. Further, the Contributing Parties (with the exception of the Shareholders) paid these settlement amounts principally, if not exclusively, to satisfy claims of tort claimants. A chapter 7 trustee would not have standing to pursue such claims. In sum, with the exception of the pursuit of avoidance actions against the Shareholder discussed in Paragraph 10 below, a chapter 7 trustee would not recover any amounts from the Contributing Parties through settlement or litigation. 8. The settlements with the Shareholders provide the Debtor s estate with certain tax-related payments that would not otherwise be available to the estate through traditional litigation. See Declaration of Stephen B. Darr in Support of Pending Settlement Motions [Dkt. 906] at Additionally, the settlements provide for payments to the estate from NECC s insurers, which, outside of the Plan, would likely contest or deny coverage under the applicable 4

5 Document Page 5 of 7 Policies, as a result of which the Debtor s estate would like realize no recovery from these insurers. Moreover, they would not be willing to settle without policy releases for the various NECC insured parties, who would be unwilling to provide them without third party releases and assurances that they would no longer require coverage for related defense costs. 10. I have assumed that a chapter 7 Trustee would pursue successfully an action to avoid and recover certain transfers from the Shareholders and their affiliates (the Insiders ) under 11 U.S.C. 544, 548 & 550. I have assumed that the recovery in this action (the Fraudulent Conveyance Action ) would be limited to a maximum amount of $10,927,801, which is the total amount of transfers to the Insiders on or after May 21, 2012 (the Earliest Compounding Date ), the date on which a contaminated lot appears to have been compounded. See Declaration of Chapter 11 Trustee in Support of Pending Settlement Motions [Dkt. 905] at 18. Prior to the Earliest Compounding Date, NECC was highly profitable. It is reasonable to assume that a chapter 7 trustee would not be able to prove that NECC was insolvent prior to that date. 11. The costs of liquidation under Chapter 7 of the Bankruptcy Code would include the fees payable to a Chapter 7 trustee, as well as those fees that might be payable to attorneys and other professionals that such a trustee might engage. The foregoing types of claims and other claims that might arise in a Chapter 7 liquidation case or result from the pending Chapter 11 Case, including any unpaid expenses incurred by the Chapter 11 Trustee and the Official Committee during this case, such as compensation for attorneys, financial advisors and accountants, would be paid in full from the liquidation proceeds before the balance of those proceeds would be made available for distribution to holders of allowed general unsecured claims. 5

6 Document Page 6 of After considering the effects that a Chapter 7 liquidation would have on the ultimate proceeds available for distribution to the holders of Claims and interests in this Chapter 11 Case, including the increases in Claims which could be satisfied on a priority basis or on parity with creditors in this Chapter 11 Case, I believe that confirmation of the Plan will provide each holder of an allowed Claim or Equity Interest with a recovery that is not less than such holder would receive pursuant to a liquidation under Chapter 7 of the Bankruptcy Code. 13. The statements in the Liquidation Analysis, including estimates of Allowed Claims, were prepared solely to assist the Bankruptcy Court in making the findings required under section 1129(a)(7) for the Plan, and they should not be used or relied upon for any other purpose. [Signature Page Follows] 6

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8 Case Doc Filed 05/12/15 Entered 05/12/15 20:19:12 Desc Exhibit A Page 1 of 3

9 Case Doc Filed 05/12/15 Entered 05/12/15 20:19:12 Desc Exhibit A Page 2 of 3

10 Case Doc Filed 05/12/15 Entered 05/12/15 20:19:12 Desc Exhibit A Page 3 of 3

11 Case Doc Filed 05/12/15 Entered 05/12/15 20:19:12 Desc Resume Page 1 of 2 STEPHEN B. DARR SENIOR MANAGING DIRECTOR MESIROW FINANCIAL CONSULTING, LLC Mr. Darr is a Managing Director in the Boston office of Huron Consulting Group, Inc. ( Huron ) Huron provides financial advisory services, interim management and fiduciary services to financially distressed business organizations, as well as litigation support and valuation services involving both distressed and non-distressed business organizations. Mr. Darr has led advisory engagements involving several significant reorganization cases, has provided interim management services in a variety of C-level positions, has served as Examiner, Chapter 7and Chapter 11 trustee in Massachusetts, Rhode Island, Maine and New Hampshire. He has testified frequently in both bankruptcy and non-bankruptcy matters. Education and Qualifications: University of Chicago, Master of Business Administration (Accounting and Finance) Boston College, Bachelor s in Business Administration (Accounting) Certified Public Accountant - Massachusetts and New Hampshire Certified Insolvency and Reorganization Advisor Certification in Distressed Business Valuation Certification in Financial Forensics Securities registrations Series 7 Registered Securities Representative Series 24-General Securities Principal Series 79-Investment Banking Representative

12 Case Doc Filed 05/12/15 Entered 05/12/15 20:19:12 Desc Resume Page 2 of 2 STEPHEN B. DARR Page 2 Associations and Memberships: Member-American Institute of Certified Public Accountants Member-Massachusetts Society of Certified Public Accountants Member-American Bankruptcy Institute Director, member and President (emeritus) of the Association of Insolvency and Restructuring Advisors Fellow-American College of Bankruptcy

13 Case Doc Filed 05/12/15 Entered 05/12/15 20:19:12 Desc Certificate of Service Page 1 of 1 Certificate of Service I, Michael R. Lastowski, hereby certify that on this day, May 12, 2015, I caused a copy of the Declaration of Stephen B. Darr in Support of Confirmation of the Second Amended Joint Chapter 11 Plan of New England Compounding Pharmacy, Inc., which was filed using this Court s ECF system, to be served electronically upon those parties registered to receive ECF service. /s/ Michael R. Lastowski Michael R. Lastowski